(Gloucestercitynews.net)(July 13, 2020)The pandemic has proven to have a detrimental impact on people and businesses across the globe. However, it is still too early to predict and estimate the losses caused by this crisis. Some experts believe that revisiting the history can provide useful insights as it pertains to surviving this pandemic on aspects. The old records suggest that any previous epidemic or pandemic that resulted with a fiscal meltdown created immediate or short-lived effects on the prices of the commercial real estate (CRE) assets. Additionally, any transactions did not suffer much. The industry recovered from the impact at different paces depending on the nature of the event – short-term or long-term. However, this pandemic is unique as it did not long before affecting the CRE industry.
The sector-wise view of the impact of Coronavirus on commercial real estate by Adam K Veron
Real Estate Investment Trusts (REITs)
The pandemic has varied influence on tenant businesses across different properties. The Data Center REITs showed a 34% annual growth in April, whereas, retail and the hotel industry reflected 48% and 53% drops, respectively. The risk associated with leasing is still under control for REITs as they follow a long-term contract. However, some of the segments are experiencing significant challenges due to shutdowns, and their sales volume have been terrible.
There is no hurry among buyers and sellers as they want to observe the market right now. Consequently, CRE deals have to wait also. All these factors are, in turn, affecting brokers. Property visits have also taken a hit due to social distancing and lockdown. In March, the CRE transactions were lower by 27%, and in April, the buyer traffic reduced by more than 30%.
Private Equity Real Estate (PERE)
The nonpublic statuses of these investments prevent recognizing the visible signs of any immediate downfall in this field. The investors are also busy guiding the portfolio companies to handle their costs and cash in this situation. Entrepreneurs like Adam K Veron believe that some investors should consider shifting their attention to tenacious assets that form a part of the digital economy. On the other hand, a few can focus on the gateway markets or consider investing in distressed assets.
The construction and cash flows associated with construction have experienced devastating blows due to restricted activities, which delays certain work, such as new development projects. The latest studies show almost one-half of construction companies have either stopped or delayed their progress. Additionally, over two-thirds of them are facing issues due to the lack of PPEs and raw materials. The sites have to ensure social distancing and frequently clean equipment and common areas. Consequently, the home purchase sentiments appear to be low, suggesting the further possibility of a downfall in new home sales.
This situation is unique compared to what has happened in the past. Still, the leadership frameworks believe that companies can rebound if they study this scenario thoroughly and apply targeted measures with a medium-term view. They can focus on aspects like, going back to physical spaces, which includes offices, retail stores, and hotels in a structured manner after the pandemic is not longer a factor. Additionally, they may want to consider encouraging working from home, promoting workers' wellbeing, adopting technology for faster implementation, and ensuring data integrity.
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